{"id":198065,"date":"2025-10-08T15:27:10","date_gmt":"2025-10-08T15:27:10","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/198065\/"},"modified":"2025-10-08T15:27:10","modified_gmt":"2025-10-08T15:27:10","slug":"todays-ai-hype-has-echoes-of-a-devastating-technology-boom-and-bust-100-years-ago","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/198065\/","title":{"rendered":"Today\u2019s AI hype has echoes of a devastating technology boom and bust 100 years ago"},"content":{"rendered":"

The electrification boom<\/a> of the 1920s set the United States up for a century of industrial dominance and powered a global economic revolution. <\/p>\n

But before electricity faded from a red-hot tech sector into invisible infrastructure<\/a>, the world went through profound social change<\/a>, a speculative bubble, a stock market crash<\/a>, mass unemployment and a decade of global turmoil. <\/p>\n

Understanding this history matters now. Artificial intelligence (AI) is a similar general purpose technology<\/a> and looks set to reshape every aspect of the economy<\/a>. But it\u2019s already showing some of the hallmarks of electricity\u2019s rise, peak and bust in the decade known as the Roaring Twenties<\/a>. <\/p>\n

The reckoning that followed could be about to repeat.<\/p>\n

First came the electricity boom<\/p>\n

A century ago, when people at the New York Stock Exchange talked about the latest \u201chigh tech\u201d investments, they were talking about electricity. <\/p>\n

Investors poured money into suppliers such as Electric Bond & Share<\/a> and Commonwealth Edison<\/a>, as well as companies using electricity in new ways, such as General Electric (for appliances), AT&T (telecommunications) and RCA (radio).<\/p>\n

It wasn\u2019t a hard sell<\/a>. Electricity brought modern movies<\/a>, new magazines<\/a> from faster printing presses, and evenings by the radio<\/a>. <\/p>\n

It was also an obvious economic game changer, promising automation, higher productivity, and a future full of leisure and consumption<\/a>. In 1920, even Soviet revolutionary leader Vladimir Lenin declared<\/a>: \u201cCommunism is Soviet power plus the electrification of the whole country.\u201d <\/p>\n

Today, a similar global urgency grips both communist and capitalist countries<\/a> about AI, not least because of military applications<\/a>.<\/p>\n

\"\"<\/a><\/p>\n

A cover story of the New York Times Magazine in October 1927.
\n The New York Times<\/p>\n

Then came the peak<\/p>\n

Like AI stocks now, electricity stocks<\/a> \u201cbecame favorites in the boom even though their fundamentals were difficult to assess\u201d.<\/p>\n

Market power was concentrated. Big players used complex holding structures to dodge rules and sell shares in basically the same companies to the public under different names. <\/p>\n

US finance professor Harold Bierman<\/a>, who argued that attempts to regulate overpriced utility stocks were a direct trigger for the crash<\/a>, estimated that utilities made up 18% of the New York Stock Exchange in September 1929. Within electricity supply, 80% of the market<\/a> was owned by just a handful of holding firms.<\/p>\n

But that\u2019s just the utilities. As today with AI, there was a much larger ecosystem. <\/p>\n

Almost every 1920s \u201cmegacap\u201d (the largest companies at the time) owed something to electrification. General Motors, for example, had overtaken Ford<\/a> using new electric production techniques.<\/p>\n

Essentially, electricity became the backdrop to the market in the same way AI is doing, as businesses work to become \u201cAI-enabled<\/a>\u201d.<\/p>\n

No wonder that today tech giants<\/a> command over a third of the S&P 500 index and nearly three-quarters of the NASDAQ<\/a>. Transformative technology drives not only economic growth, but also extreme market concentration.<\/p>\n

In 1929, to reflect the new sector\u2019s importance, Dow Jones launched the last of its three great stock averages: the electricity-heavy Dow Jones Utilities Average<\/a>. <\/p>\n

But then came the bust<\/p>\n

The Dow Jones Utilities Average went as high as 144<\/a> in 1929. But by 1934, it had collapsed to just 17<\/a>.<\/p>\n

No single cause<\/a> explains the New York Stock Exchange\u2019s unprecedented \u201cGreat Crash\u201d, which began on October 24 1929<\/a> and preceded the worldwide Great Depression. <\/p>\n

That crash triggered a banking crisis, credit collapse, business failures, and a drastic fall in production. Unemployment soared<\/a> from just 3% to 25%<\/a> of US workers by 1933 and stayed in double figures until the US entered the second world war in 1941.<\/p>\n

\"Lithograph<\/a><\/p>\n

Lithograph of Wall Street, New York City, after the 1929 stock market crash. Jame Rosenberg, Ben and Beatrice Goldstein Foundation collection, US Library of Congress<\/a><\/p>\n

The ripple effects were global, with most countries seeing a rise in unemployment, especially in countries reliant on international trade<\/a>, such as Chile, Australia<\/a> and Canada, as well as Germany<\/a>. <\/p>\n

The promised age of shorter hours and electric leisure turned into soup kitchens and bread lines.<\/p>\n

The collapse exposed fraud and excess. Electricity entrepreneur Samuel Insull<\/a>, once Thomas Edison<\/a>\u2019s prot\u00e9g\u00e9 and builder of Chicago\u2019s Commonwealth Edison, was at one point worth US$150 million<\/a> \u2013 an even more staggering amount at the time.<\/p>\n

But after Insull\u2019s empire went bankrupt in 1932, he was indicted for embezzlement and larceny<\/a>. He fled overseas, was brought back, and eventually acquitted \u2013 but 600,000 shareholders and 500,000 bondholders<\/a> lost everything.<\/p>\n

However, to some Insull seemed less a criminal mastermind than a scapegoat for a system whose flaws ran far deeper.<\/p>\n<\/p>\n

Reforms unthinkable during the boom years followed. <\/p>\n

The Public Utility Holding Company Act of 1935<\/a> broke up the huge holding company structures<\/a> and imposed regional separation. Once exciting electricity darlings became boring regulated infrastructure: a fact reflected in the humble \u201cElectric Company\u201d square on the original 1935 Monopoly<\/a> board.<\/p>\n

Lessons from the 1920s for today<\/p>\n

AI is rolling out faster than even those seeking to use it for business or government policy can sometimes manage properly<\/a>.<\/p>\n

Like electricity a century ago, a few interconnected firms<\/a> are building today\u2019s AI infrastructure. <\/p>\n

And like a century ago, investors are piling in \u2013 though many don\u2019t know the extent of their exposure through their superannuation funds<\/a> or exchange traded funds (ETFs)<\/a>.<\/p>\n

Just as in the late 1920s, today\u2019s regulation of AI is still loose in many parts of the world \u2013 though the European Union is taking a tougher approach with its world-first AI law<\/a>.<\/p>\n

US President Donald Trump has taken the opposite approach, actively cutting \u201conerous regulation<\/a>\u201d of AI. Some US states<\/a> have responded by taking action themselves. The courts, when consulted, are hamstrung by laws<\/a> and definitions<\/a> written for a different era.<\/p>\n

Can we transition to AI being invisible infrastructure like electricity without a another bust, only then followed by reform? <\/p>\n

If the parallels to the electrification boom remain unnoticed, the chances are slim.<\/p>\n","protected":false},"excerpt":{"rendered":"The electrification boom of the 1920s set the United States up for a century of industrial dominance and…\n","protected":false},"author":2,"featured_media":198066,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[256,254,255,64,63,105],"class_list":{"0":"post-198065","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-artificial-intelligence","8":"tag-ai","9":"tag-artificial-intelligence","10":"tag-artificialintelligence","11":"tag-au","12":"tag-australia","13":"tag-technology"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/198065","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=198065"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/198065\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/198066"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=198065"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=198065"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=198065"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}